China trade deficit threat to U.S., others

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Snapshot for February 27, 2002.

China trade deficit threat to U.S., others China continues to have the largest bilateral trade deficit with the U.S. of any country in the world. It also has the most imbalanced trade relationship. The U.S. imported more than $5 worth of goods from China for every $1 worth of exports in 2001. This five-to-one ratio has been exceeded in U.S. history only by the six-to-one trade imbalance that was recorded by China in 2000.

China’s entry into the World Trade Organization raises many questions about its future impact on world trade patterns. Exports to China increased by $3 billion in 2001, while U.S. imports from that country rose by $2.3 billion. Its not surprising that exports to China rose in anticipation of its WTO entry. Mexico went through a period of rapidly growing demand for U.S. exports in 1993 and 1994. Capital goods and construction equipment were responsible for most of this growth, as Mexico prepared for entry into North American Free Trade Agreement. But from 1995 onward, the U.S.-Mexico trade deficit soared as goods destined for the U.S. market began to pour out of new factories in Mexico.

Changes in China’s trade deficit mask underlying structural shifts in U.S. trade with Asia and the rest of the World. China’s merchandise (goods) trade deficit with the U.S. declined 1% between 2000 and 2001, while the overall U.S. goods trade deficit fell 5.7%. As a result, China’s share of the overall deficit actually increased from 18.5% to 19.5% last year. U.S. Trade deficits with Japan and the newly industrializing countries (Hong Kong, Singapore, South Korea, and Taiwan) declined 21.3% and 15.4%, respectively, in 2001 as their exports to the U.S. fell. These countries are threatened by the loss of production and jobs to China. Throughout Asia, concern is mounting that massive growth in China’s exports will lead to a hollowing out of their economies. The threat to the U.S. economy is even greater because it is already so open to China’s exports.